## Facts

- ACandS, Inc., a major asbestos insulation installer, faced extensive asbestos litigation and held four identical general liability policies issued by Aetna (Travelers’ predecessor) for 1976–1979.
- Each policy provided operations coverage with a $1 million per-occurrence limit and no aggregate cap, and products coverage with a $1 million per-occurrence limit and a $1 million aggregate cap.
- ACandS conceded products coverage was exhausted; the parties agreed to allocate asbestos claims 55% to products (uninsured) and 45% to operations (insured), subject to per-occurrence limits.
- In a separate dispute, Travelers asserted all asbestos claims arose from a single occurrence, which would cap liability at $1 million per policy year; ACandS filed a declaratory judgment action seeking a ruling that each claim was a separate occurrence.
- A later allocation dispute went to arbitration; Travelers sought affirmative relief by arguing the operations allocation should be reduced to 0%, asserting ACandS had stopped installing asbestos before the policies incepted.
- ACandS filed for Chapter 11 bankruptcy on September 16, 2002, but the arbitration continued and the panel issued an award reducing the operations allocation to 0%.
- ACandS moved to vacate the award, arguing it violated the automatic stay under 11 U.S.C. § 362(a); the district court confirmed the award and dismissed the declaratory judgment action as moot.

## Issues

1. Whether, and at what point, the arbitration became a “proceeding against the debtor” stayed by 11 U.S.C. § 362(a).
2. Whether an arbitration award granting the insurer affirmative relief by eliminating operations coverage violated the automatic stay by diminishing property of the bankruptcy estate.
3. Whether the district court erred by confirming the arbitration award and dismissing the related declaratory judgment action as moot.

## Decision

- The Third Circuit reversed the district court.
- The court held the arbitration became subject to the automatic stay once Travelers submitted arguments seeking an award against ACandS, not merely defending against ACandS’s position.
- The court held the award violated the automatic stay because it granted Travelers affirmative relief that diminished the bankruptcy estate by eliminating valuable insurance rights.
- Because the award violated § 362(a), the district court could not properly confirm it, and the related dismissal of the declaratory judgment action could not stand.

## Legal Principles

- The automatic stay under 11 U.S.C. § 362(a) applies to the continuation of an “action or proceeding against the debtor,” including proceedings that change posture when a nondebtor seeks affirmative relief from a tribunal.
- Contractual rights under liability insurance policies, including the benefit of coverage allocations, constitute property of the estate under 11 U.S.C. § 541(a).
- An adjudicatory result that reduces or strips estate insurance value is an act that unlawfully exercises control over, or diminishes, estate property when obtained during the stay without bankruptcy-court permission.
- A court may not confirm an arbitral award that was procured in violation of the automatic stay.

## Conclusion

The Third Circuit held that, after ACandS entered Chapter 11, Travelers’ pursuit and receipt of an arbitration award eliminating operations coverage constituted affirmative relief against the debtor that reduced estate property, violating the automatic stay; the confirmation order and related mootness dismissal were reversed.


ACandS, Inc. v. Travelers Cas. & Sur. Co., 435 F.3d 252 (3d Cir. 2006)